- Published: 10 December 2009
- Written by Editor
Dollarama records strong sales and earnings growth in initial financial report following IPO
Dollarama Inc. ("Dollarama" or the "Corporation") (TSX: DOL.TO) reported significant increases in sales and net earnings today for the quarter and year-to-date periods ended November 1, 2009. Today's financial report for the third quarter of fiscal year 2010 is the first for Dollarama since the Corporation's initial public offering ("IPO") in October 2009.
Financial and Operating Highlights
(All comparative figures below and in the "Financial Results" section that follows, are for the 13-week and 39-week periods ended November 1, 2009 compared to the 13-week and 39-week periods ended November 2, 2008. Throughout this news release, the term "Normalized" has been used to refer to financial results that have been adjusted to exclude certain non-recurring items and charges related to the Corporation's IPO in October 2009.
For a full explanation of the Corporation's use of the Non-GAAP measures, please refer to Note 1 of the Selected Consolidated Financial Information section of this news release.)
- Sales increased 14.8% in the third quarter and 15.0% year-to-date
- Comparable store sales grew 7.3% in the third quarter and year-to-date
periods
- Year-to-date gross margin increased to 34.5% of sales from 34.0% of
sales
- Normalized EBITDA(1) for the third quarter grew 27.1% to $46.7 million
from $36.8 million
- Diluted net earnings per share for the third quarter increased to $0.02
from a loss of $(0.52)
- Diluted Normalized net earnings(1) per share increased to $0.46 in the
third quarter from a Normalized net loss(1) of $(0.51)
- Proceeds from $300 million IPO reduced net debt to $487.1 million as of
November 1, 2009
"We are extremely satisfied with the strong performance of the business during the third quarter," said Larry Rossy, chief executive officer of Dollarama Inc. "Consumers continue to respond favourably to our expanding assortment of items priced at over one dollar and the exciting new values they offer. The growing profitability of our operations also reflects the management team's efforts to manage costs and improve bottom line performance."
"We welcome our new shareholders. As a result of our successful $300 million initial public offering during the third quarter, we have reduced our net debt and we are in a strong position to continue growing the business," said Mr. Rossy.
Financial Results
Sales for the 13-week period ended November 1, 2009 increased 14.8% to $312.8 million from $272.4 million in the corresponding period in 2008. For the 39-week period ended November 1, 2009, sales grew 15.0% to $889.6 million from $773.5 million for the same period in 2008.
Third quarter sales growth was driven by the opening of 42 net new stores over the last twelve months as well as a 7.3% increase in comparable store sales over the third quarter of last year. Over the last twelve months, Dollarama opened 17 new stores in the western provinces of Manitoba, Saskatchewan, Alberta and British Columbia and 25 net new stores in the rest of Canada.
Comparable store sales increased 7.3% in the third quarter, driven by a 1.1% increase in the number of transactions and a 6.2% increase in the average transaction size, as consumers continue to discover compelling value in Dollarama's merchandise assortment priced above our traditional $1.00 price point. During the third quarter, approximately 27% of sales were accounted for by merchandise offered at price points greater than $1.00, compared to 24% during the second quarter of fiscal year 2010.
Gross margin increased to 35.5% of sales in the third quarter compared to 34.2% of sales in the same period last year, due primarily to improved product margins and reduced transportation costs. For the 39-week period ending November 1, 2009, gross margin increased to 34.5% of sales compared to 34.0% of sales for the same period last year.
General, administrative and store operating expenses ("SG&A") in the third quarter increased to $76.2 million from $57.0 million for the same period last year due to the opening of 42 net new stores since the end of the third quarter last year and the incurrence of approximately $11.8 million of non-recurring and IPO-related charges in the current quarter. These non-recurring and IPO-related charges include: a $0.8 million management fee paid to the Corporation's majority shareholder; a $5.0 million fee paid in connection with the termination of our management agreement with the Corporation's majority shareholder; stock compensation expense of approximately $4.9 million triggered by the IPO; and severance charges of $1.2 million. Excluding these non-recurring and IPO-related charges, Normalized SG&A(1) expenses were stable at 20.6% of sales in the third quarter of fiscal year 2010 compared to the same period last year.
Operating income for the 13-week period ended November 1, 2009 totalled $28.9 million compared to $30.5 million for the 13-week period ended November 2, 2008. Adjusted for the non-recurring and IPO-related SG&A expenses detailed above, Normalized earnings before interest and taxes ("EBIT")(1), a non-GAAP measure of operating performance used by the Corporation, increased 30.2% to $40.7 million or 13.0% of sales in the third quarter, compared to $31.3 million or 11.5% of sales in the third quarter last year. For the 39-week period ending November 1, 2009, Normalized EBIT(1) margin increased to 11.9% of sales from 11.7% of sales for the corresponding period last year, driven by the increase in gross margin over the same period.
Interest expense on long-term debt increased $10.1 million to $26.2 million in the third quarter of fiscal year 2010 from $16.1 million during the third quarter of the previous year, due primarily to $13.8 million of non-recurring interest expense, including: the write-off of $3.8 million of financing costs associated with the debt redeemed with the IPO proceeds, and $10.0 million in debt repayment premium and expenses associated with the redemption of our 8.875% senior subordinated notes. There were no unusual interest charges recorded in the third quarter last year.
For the 13-week period ended November 1, 2009, the Corporation recorded a foreign exchange gain of $7.8 million arising from the mark-to-market of derivative financial instruments and long-term debt. This foreign exchange gain compares with a foreign exchange loss on derivative financial instruments and long-term debt of $30.2 million recorded during the 13-week period ended November 2, 2008 driven by the impact of the strengthening of the US dollar relative to the Canadian dollar on our US dollar-denominated senior floating deferred interest notes which were not hedged during that period. Given the redemption of the 8.875% senior subordinated notes on November 17, 2009 and the continuance of the related derivative instruments to hedge the senior floating deferred interest notes, management does not expect that the net earnings (loss) of the Corporation will be impacted significantly by foreign exchange losses (gains) on derivative financial instruments and long-term debt in the future.
For the third quarter ended November 1, 2009, Dollarama reported net earnings of $1.1 million or $0.02 per diluted share compared to a net loss of $22.2 million or $(0.52) per diluted share for the third quarter last year. Net earnings in the third quarter of fiscal year 2010 were reduced significantly by the one-time expenses associated with the Corporation's IPO as described above, partially offset by a foreign exchange gain on derivative financial instruments and long-term debt; whereas net earnings in the third quarter of fiscal year 2009 were unfavourably impacted by a $30.2 million foreign exchange loss on derivative financial instruments and long-term debt associated primarily with the impact of the strengthening of the US dollar relative to the Canadian dollar on our US dollar-denominated senior floating deferred interest notes.
Excluding the tax-adjusted non-recurring and IPO-related charges described above, Dollarama generated Normalized net earnings(1) of $23.0 million or $0.46 per diluted share for the third quarter ended November 1, 2009 compared to a Normalized net loss(1) of $21.7 million or $(0.51) per diluted share for the same period last year. Normalized net earnings(1) increased to $61.9 million or $1.36 per diluted share for the 39-week period ended November 1, 2009 from a Normalized net loss(1) of $20.5 million or $(0.48) per diluted share for the same period last year.
About Dollarama Inc.
In 1992, the Dollarama business was founded by our CEO, Larry Rossy, a third generation retailer. We are the leading dollar store operator in Canada with 594 locations across the country. Our stores provide customers with compelling value in convenient locations, including metropolitan areas, mid-sized cities and small towns. All stores are corporate-owned and provide customers with a consistent shopping experience. Each store offers a broad assortment of everyday consumer products, general merchandise and seasonal items. Products are sold in individual or multiple units at select fixed price points between $1.00 and $2.00, with the exception of select candy offered at $0.65.
Forward looking statements
Certain statements in this news release may contain forward-looking statements. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business and its corporate structure. Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: future increases in operating and merchandise costs, inability to refresh our merchandise as often as in the past, increase in the cost or a disruption in the flow of imported goods, disruption of distribution infrastructure, current adverse economic conditions, high level of indebtedness, inability to generate sufficient cash to service all the Corporation's indebtedness, ability of the Corporation to incur additional indebtedness, significant operating restrictions imposed by our senior secured credit facility and our senior floating rate deferred interest notes indenture, interest rate risk associated with variable rate indebtedness, no guarantee that our strategy to introduce products between $1.00 and $2.00 will be successful, market acceptance of our private brands, inability to increase capacity of the warehouse and distribution centers, weather conditions or seasonal fluctuations, competition in the retail industry, dependence on ability to obtain competitive pricing and other terms from our suppliers, inability to renew store, warehouse and distribution center leases or find other locations on favourable terms, disruption in information technology systems, growth strategy unsuccessfully executed, inability to achieve the anticipated growth in sales and operating income, inventory shrinkage, compliance with environmental regulations, failure to attract and retain qualified employees, departure of senior executives, fluctuation in the value of the Canadian dollar in relation to the U.S. dollar, litigation, product liability claims and product recalls, unexpected costs associated with our current insurance program, protection of trademarks and other proprietary rights and natural disasters, risks associated with the protection of customers' credit and debit card data as well as the other factors identified throughout our Management Discussion & Analysis dated December 10, 2009. The forward-looking statements contained in this discussion represent the Corporation's expectations as of December 10, 2009, and are subject to change after such date. However, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
Selected Consolidated Financial Information
(dollars in
thousands,
except per 13-Week 13-Week 39-Week 39-Week
share amounts Period Ended Period Ended Period Ended Period Ended
and number November 1, November 2, November 1, November 2,
of shares) 2009 2008 2009 2008
-------------- ------------- ------------- --------------
Earnings Data
Sales $ 312,797 $ 272,379 $ 889,606 $ 773,465
Cost of sales 201,674 179,356 582,412 510,703
-------------- ------------- ------------- --------------
Gross profit 111,123 93,023 307,194 262,762
Expenses:
General,
administrative
and store
operating
expenses 76,229 56,990 196,442 158,639
Amortization 6,008 5,500 18,343 15,838
-------------- ------------- ------------- --------------
Total expenses 82,237 62,490 214,785 174,477
-------------- ------------- ------------- --------------
Operating income 28,886 30,533 92,409 88,285
Interest expense
on long-term
debt 26,170 16,079 55,066 46,102
Interest expense
on amounts due
to shareholders 5,826 6,469 19,866 18,940
Foreign exchange
loss (gain) on
derivative
financial
instruments and
long-term debt (7,785) 30,230 (36,619) 39,786
-------------- ------------- ------------- --------------
Earnings (loss)
before income
taxes 4,675 (22,245) 54,096 (16,543)
Provision for
(recovery of)
income taxes 3,535 (38) 15,243 5,489
-------------- ------------- ------------- --------------
Net earnings
(loss) $ 1,140 $ (22,207) $ 38,853 $ (22,032)
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Basic net
earnings (loss)
per common
share $ 0.02 $ (0.52) $ 0.87 $ (0.52)
Diluted net
earnings (loss)
per common
share $ 0.02 $ (0.52) $ 0.85 $ (0.52)
Weighted average
number of basic
common shares
outstanding
during the
period (in
thousands) 48,202 42,576 44,451 42,576
Weighted average
number of
diluted common
shares
outstanding
during the
period (in
thousands) 50,345 42,576 45,659 42,576
Balance Sheet
Data(2)
Cash and cash
equivalents $ 261,539
Merchandise
inventories 255,949
Property and
equipment 135,095
Total assets 1,508,797
Total debt(3) 748,660
Net debt(4) 487,121
Other Data
Year-over-year
sales growth 14.8% 12.6% 15.0% 11.9%
Comparable store
sales growth(5) 7.3% 4.2% 7.3% 2.7%
Gross margin(6) 35.5% 34.2% 34.5% 34.0%
Normalized SG&A
as a % of
sales(1)(7) 20.6% 20.6% 20.6% 20.2%
Normalized
EBITDA(1) $ 46,743 $ 36,783 $ 124,337 $ 106,373
Normalized
EBIT(1) $ 40,735 $ 31,283 $ 105,994 $ 90,535
Normalized EBIT
margin(1)(7) 13.0% 11.5% 11.9% 11.7%
Normalized net
earnings(1) $ 22,996 $ (21,695) $ 61,893 $ (20,497)
Capital
expenditures $ 7,119 $ 9,033 $ 23,928 $ 25,945
Number of
stores(2) 594 552 594 552
Average store
size (gross
square feet)(2) 9,795 9,733 9,795 9,733
-----------------------------
(1) In this document, we refer to Normalized EBIT, Normalized EBITDA,
Normalized SG&A and Normalized net earnings (loss), collectively
referred to as the "Non-GAAP measures". Normalized EBIT represents
operating income, in accordance with Canadian GAAP, adjusted for
non-recurring and IPO-related charges. Normalized EBITDA represents
Normalized EBIT plus amortization. Normalized SG&A represents
General, administrative and store operating expenses ("SG&A"), in
accordance with Canadian GAAP, adjusted for non-recurring and IPO-
related charges. Normalized net earnings (loss) represents net
earnings (loss), in accordance with Canadian GAAP, adjusted for non-
recurring and IPO-related charges, net of tax impacts.
We have included Non-GAAP measures to provide investors with
supplemental measures of our operating and financial performance. We
believe Non-GAAP measures are important supplemental metrics of
operating and financial performance because they eliminate items that
have less bearing on our operating and financial performance and thus
highlight trends in our core business that may not otherwise be
apparent when relying solely on Canadian GAAP measures. We also
believe that securities analysts, investors and other interested
parties frequently use Non-GAAP measures in the evaluation of
issuers, many of which present Non-GAAP measures when reporting their
results. Our management also uses Non-GAAP measures in order to
facilitate operating and financial performance comparisons from
period to period, to prepare annual budgets, and to assess our
ability to meet our future debt service, capital expenditure, and
working capital requirements, as well as our ability to pay dividends
on our capital stock. Non-GAAP measures are not presentations made in
accordance with Canadian GAAP. For example, certain or all of the
Non-GAAP measures do not reflect: (a) our cash expenditures, or
future requirements for capital expenditures or contractual
commitments; (b) changes in, or cash requirements for, our working
capital needs; (c) the significant interest expense, or the cash
requirements necessary to service interest or principal payments on
our debt; and (d) income tax payments that represent a reduction in
cash available to us. Although we consider the items excluded in the
calculation of Non-GAAP measures to be non-recurring and less
relevant to evaluate our performance, some of these items may
continue to take place and accordingly may reduce the cash available
to us.
We believe that the presentation of the Non-GAAP measures described
above is appropriate. However, these Non-GAAP measures have important
limitations as analytical tools, and you should not consider them in
isolation, or as substitutes for analysis of our results as reported
under Canadian GAAP. Because of these limitations, we primarily rely
on our results as reported in accordance with Canadian GAAP and use
the Non-GAAP measures only as a supplement. In addition, because
other companies may calculate Non-GAAP measures differently than we
do, they may not be comparable to similarly-titled measures reported
by other companies.
13-Week 13-Week 39-Week 39-Week
Period Ended Period Ended Period Ended Period Ended
(dollars in November 1, November 2, November 1, November 2,
thousands) 2009 2008 2009 2008
-------------- ------------- ------------- --------------
A reconciliation
of operating
income to
Normalized EBIT
is included
below:
Operating income $ 28,886 $ 30,533 $ 92,409 $ 88,285
Add: non-recurring
and IPO-related
charges:
Management
fees(a)(b) 750 750 2,250 2,250
Fee paid in
connection
with the
termination
of the
management
agreement(b) 5,000 - 5,000 -
IPO related
stock
compensation
expense(c) 4,852 - 4,852 -
Severance(d) 1,247 - 1,483 -
-------------- ------------- ------------- --------------
Non-recurring
and IPO-related
charges 11,849 750 13,585 2,250
-------------- ------------- ------------- --------------
Normalized EBIT $ 40,735 $ 31,283 $ 105,994 $ 90,535
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Normalized
EBIT margin 13.0% 11.5% 11.9% 11.7%
A reconciliation
of Normalized
EBIT to
Normalized
EBITDA is
included below:
Normalized EBIT $ 40,735 $ 31,283 $ 105,994 $ 90,535
Add:
Amortization 6,008 5,500 18,343 15,838
-------------- ------------- ------------- --------------
Normalized
EBITDA $ 46,743 $ 36,783 $ 124,337 $ 106,373
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
(dollars in 13-Week 13-Week 39-Week 39-Week
thousands, Period Ended Period Ended Period Ended Period Ended
except per November 1, November 2, November 1, November 2,
share amounts) 2009 2008 2009 2008
-------------- ------------- ------------- --------------
A reconciliation
of SG&A to
Normalized SG&A
is included
below:
SG&A $ 76,229 $ 56,990 $ 196,442 $ 158,639
Deduct: non-
recurring and
IPO-related
charges(a)(b)
(c)(d) (11,849) (750) (13,585) (2,250)
-------------- ------------- ------------- --------------
Normalized SG&A $ 64,380 $ 56,240 $ 182,857 $ 156,389
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Normalized
SG&A as a %
of sales 20.6% 20.6% 20.6% 20.2%
A reconciliation
of net earnings
(loss) to
Normalized net
earnings (loss)
is included
below:
Net earnings
(loss) $ 1,140 $ (22,207) $ 38,853 $ (22,032)
Diluted net
earnings
(loss) per
common share $ 0.02 $ (0.52) $ 0.85 $ (0.52)
Add/(deduct)
pre-tax:
Management
fees(a) 750 750 2,250 2,250
Fee paid in
connection
with the
termination of
the management
agreement(b) 5,000 - 5,000 -
Stock-comp
expense
triggered by
the IPO(c) 4,852 - 4,852 -
Severance(d) 1,247 - 1,483 -
Write-off of
deferred
financing
cost(e) 3,814 - 3,814 -
Debt repayment
premium and
expenses(f) 10,006 - 10,006 -
Tax impact (3,813) (238) (4,365) (715)
-------------- ------------- ------------- --------------
Normalized net
earnings (loss) $ 22,996 $ (21,695) $ 61,893 $ (20,497)
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Diluted
Normalized
net earnings
(loss) per
common share $ 0.46 $ (0.51) $ 1.36 $ (0.48)
-----------------------------
(a) Reflects the management fees incurred and paid or payable to the
company's majority shareholder, excluding out of pocket expenses.
(b) The management agreement was terminated concurrent with the IPO.
(c) Reflects the stock compensation expense related to performance
vesting clauses that were triggered by our IPO.
(d) Represents the elimination of severance.
(e) Write-off deferred financing costs associated with the debt
redeemed with our IPO proceeds.
(f) Call premium, prepayment expenses and other fees associated with
the redemption of our 8.875% senior subordinated notes in
November 2009.
(2) At the end of the period
(3) Total debt is comprised of current portion of long-term debt,
long-term debt before financing costs and discounts, and derivative
financial instruments related to long-term debt.
(4) Net debt is defined as total debt (see note 3) minus cash and cash
equivalents.
(5) Comparable store means a store open for at least 13 complete months
relative to the same period in the prior year, including relocated
stores and expanded stores.
(6) Gross margin represents gross profit as a % of sales.
(7) Normalized EBIT margin represents Normalized EBIT (see note 1)
divided by sales. Normalized SG&A as a % of sales represents
Normalized SG&A (see note 1) divided by sales.
